On Friday of last week, LendingClub announced that it closed a new kind of transaction. It was a whole loan transaction structured as a tradable pass through security called a CLUB Certificate.
So what does this actually mean? I reached out to Lending Club to find out more. While they were very careful not to say anything that could be construed as a forward-looking statement they did provide a little more color than the press release.
This was an initiative that was investor led. Basically, they had a potential investor who did not want to invest in whole loans. They are not for everyone, given they are an illiquid investment that has a duration of several years. What this investor wanted was a security that acted like a whole loan but one that had liquidity.
So, LendingClub created a security with a CUSIP that was cleared by the DTCC and could potentially be traded in OTC markets. It was a $25 million deal that was sold to one investor and in keeping with Dodd-Frank rules LendingClub retained 5% of the deal total on their balance sheet.
While LendingClub would not share details of this deal we did learn that these were both three and five year loans of one particular loan grade. They customized this deal to meet the investors exact requirements. And this is really what makes this vehicle quite appealing. It would be close to impossible to replicate this exact deal inside a traditional securitization structure given those are usually pools of loans with broad criteria.
LendingClub claimed that this was a first of its kind deal in marketplace lending but in my research I discovered this piece on Asset-Backed Alert from April 2016 that talked about a similar structure that Prosper was working on last year. Now, I have not heard whether this planned structure received traction at Prosper so LendingClub may well be right that this is the first ever deal of its kind that has closed in the industry. It just shows that others have been thinking about this for some time.